Overturning Orders for Possession on appeal – beware of an appellant’s new evidence and new contentions

In De Pasquale v ASCF Managed Investments Pty Ltd,[1] an appeal was brought against an Order for Possession made by a Master of the Supreme Court of South Australia on 19 December 2019 against the appellants’ property. In the appeal, Justice Livesay of the Supreme Court of South Australia considered the following:

1. 1. whether it was in the interests of justice to permit the appellants to argue new contentions and tender new evidence; and importantly,
   2. whether the appellants had demonstrated an arguable case that the respondent lender, whether personally or through its agent, acted unconscionably when making a loan or taking the associated mortgage over the appellants’ property.

In this instance, his Honour found in favour of the appellants, set aside the Order for Possession and ordered that the matter be transferred to the ordinary civil list of the General Division of the Supreme Court to continue on pleadings and discovery in the usual way.

Background

The appellants, Mr and Mrs De Pasquale, were the registered proprietors and mortgagors of a property at West Beach, South Australia (the Property).

The appellants, in their personal capacities, and their companies (referred to collectively as the De Pasquale Entities), entered into a loan agreement with ASCF Managed Investments Pty Ltd (ASCF) (the respondent) to borrow $525,000 (the Current Loan) for the purpose of refinancing. As security for all monies (including future monies) owing by the De Pasquale Entities to ASCF, Mr and Mrs De Pasquale granted a registered mortgage in favour of ASCF over the Property.

Mrs De Pasquale, who had been wheelchair bound for 8 years and deaf since an early age, was the guarantor of the Loan. Her deafness together with her lack of language and comprehension ‘seriously’ impeded her capacity to function and as such, Mr De Pasquale was her fulltime carer. Neither of the appellants were able to work.

Of the funds borrowed, only $22,000 was to be retained by Mr and Mrs De Pasquale. That amount was retained by Mr De Pasquale only.

Of note, the security documents for the Current Loan were prepared by Summer Lawyers on behalf of ASCF. Summer Lawyers was the same firm that had previously sent the appellants (amongst others) letters of demand due to the failure to make interest repayments on a previous loan with an earlier lender (the Earlier Lender).

Ultimately, Mr and Mrs De Pasquale defaulted on the Current Loan and ASCF obtained an Order for Possession against the Property.

On appeal, Mr and Mrs De Pasquale’s arguments (which were not put before the Master) fell into two categories:

1. 1. the granting of the Current Loan was unconscionable under general law and/or statute as ASCF knew, or knew through its agent Summer Lawyers, that the appellants were already in default of another loan with the Earlier Lender and the Current Loan involved ‘asset lending’; and
   2. ASCF acted unconscionably in enforcing the guarantee provided by Mrs De Pasquale.

Common to each category was the argument that the appellants did not receive independent legal advice; particularly, Mrs De Pasquale did not receive advice independently of her husband.

The appellants also sought to rely on evidence not adduced before the Master, being:

1. 1. their Loan application; and
   2. further affidavit evidence from Mrs De Pasquale of her medical condition and capacity.

Decision

Whether Mr and Mrs De Pasquale’s could make new arguments and submit new evidence

On appeal, his Honour permitted Mr and Mrs De Pasquale to raise new contentions and admit further evidence on the following basis:

1. 1. it was in the interests of justice to allow Mr and Mrs De Pasquale to raise new contentions. An important consideration was whether there was a risk of prejudice to the other party.[2] ASCF did not provide any evidence to suggest that it would suffer irreparable prejudice as a result of the new contentions;
   2. possession proceedings are summary in nature; there is no discovery. Therefore, Mr and Mrs De Pasquale were unable to put their Current Loan application before the Master.[3] The appellants only came into possession of the application after the hearing before the Master;
   3. the purpose of the further affidavit evidence was to agitate Mr and Mrs De Pasquale’s new contentions and it was unlikely that the receipt of the affidavit evidence would occasion any injustice to ASCF;
   4. while the affidavit evidence ought to have been put before the Master, there was a shift in strategy on appeal. It was unlikely that the evidence of Mrs De Pasquale’s medical condition was as relevant to the case before the Master as it was on appeal; and
   5. having an overarching regard to the interests of justice,[4] it was appropriate for the Court to exercise its discretion to permit the new evidence to ensure that the real issues between the parties could be identified.

Unconscionability

His Honour held that Mr and Mrs De Pasquale had established the following triable issues:

1. 1. whether the knowledge of Summer Lawyers in acting for the Earlier Lender and then ASCF can be attributed to ASCF;
   2. whether ASCF acted unconscionably in providing the Current Loan to Mr and Mrs De Pasquale where Summer Lawyers knew that the appellants were in default of the loan with the Earlier Lender;
   3. whether ASCF acted unconscionably for the purpose of the Australian Securities and Investment Commission Act 2001 (Cth) by engaging in ‘asset lending’;
   4. whether ASCF knew that Mr and Mrs De Pasquale had not received independent legal advice from their solicitors, who acted for all borrowers, mortgagors, and guarantors to the Loan; and
   5. whether pursuant to Garcia v National Australia Bank[5] and Yerkey v Jones,[6] ASCF acted unconscionably in purporting to enforce the guarantee against Mrs De Pasquale. This included consideration of whether Mrs De Pasquale was a volunteer (as she received no benefit from the Current Loan) and did not receive legal advice independent of her husband.

Throughout his judgment, his Honour frequently stated that it was neither necessary nor appropriate for him to make findings of fact on the appellants’ case. Rather, his role was to simply determine whether Mr and Mrs De Pasquale had established that there were real questions to be tried.

It appeared that his Honour used these statements as a means to consciously remind himself of his role on appeal. In reality, his detailed application of the case law to the facts, just falling short of reaching a conclusion, was suggestive of a desire to argue the issues in dispute (perhaps a glimpse into his Honour’s previous life as an eminent South Australian barrister).

Key takeaway

South Australian possession proceedings are summary in nature; there is no discovery of documents. As such, lenders need to be aware that a Court may, on appeal, look favourably to exercise its discretion to permit new contentions to be raised or new evidence to be tendered provided it is in the interests of justice to do so. Should the Court deny an appellant the opportunity to raise new contentions or tender new evidence there is the risk that a ‘good claim’[7] will not be considered and the Court will be unable to effectively perform its simple appellate task of deciding whether there is an arguable case. Ultimately, this may lead to Orders for Possession being set aside, even if they were rightly made in the first instance.

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Authored by:

Fidelis McGarrigan, Partner
Hannah Tsavalas, Lawyer

[1] [2021] SASC 21.

[2] Battye v Shammall (2005) 91 SASR 315, [10].

[3] Andrew Garrett Wines Resorts Pty Ltd v National Australia Bank Ltd (2004) 206 ALR 69.

[4] Ibid.

[5] (1998) 194 CLR 395.

[6] (1939) 63 CLR 649.

[7] Battye v Shammall (2005) 91 SASR 315, [21].